Archives for July 2013

Workers Compensation Marketer Characteristics

A great Workers compensation marketer never seems hard to find unless the marketing is in-person. Workers Compensation marketing has become what one may think is much easier with LinkedIn. Facebook, Google+ and the other social networks. After all, a marketer can cover many clients with a great LinkedIn post, for example.

Actually, when one examines what make a great Workers Comp ancillary services marketer, the “old school” way of doing business seems to drive success. The services referred to in this article are rehabilitation field case managers, pharmaceutical networks, bill review providers, etc.

No matter how many times a marketer posts to LinkedIn or sends emails, the company that wins out will usually be the in-person service providers. One Call Medical, MSC (now part of One Call), PMSI, Corvel, and others have proved that shaking hands and establishing in-person business relationships will always win over prospects.

Whenever I am asked to analyze a company or certain sector of the marketplace, I always tend to look at the marketing budget of a company to see if the numbers can be broken down into in-person marketing expenses. This does not include being at a booth at a big conference. The marketing budget that I am referring to includes:

In-person lunches

In-person visits to the claims office

Providing CEU credits

Gifts

Travel to offices other than a corporate office

Not being at a booth at a conference

The other side of the coin is service-oriented. There was a time when there were no Pharmaceutical Benefit Management Networks. (PBM’s) Employers and adjusters would have stacks of those little pharmacy receipts everywhere.

Taking those little receipts off a desk and having one line-by-line report to pay saved hours of time. The predecessors to PBM’s were mail order prescription suppliers that basically removed the same receipts and enabled the adjusters to approve one itemized bill.

Insurance carriers and TPA’s have found and will find the cost-cutting along with work reduction as offers they cannot really refuse.

Claim Severity – Where One Claim Can Ruin Your Mod

The Claim Severity vs. Frequency Effect can result from one claim. One severe claim cannot hurt your Mod as bad as a number of smaller claims. This is one of the misnomers that exists today in Worker Compensation insurance rating system.

The frequency statement is partially true. Late last month, our company consulted with an employer who previously had a .87 Mod.

The employer had incurred a very severe accident that was going to show up in their Mod at renewal. The employer was not a micro-employer. According to the size segments used by the Feds, they were still considered a small employer.

Using the prior data, we were able to forecast the Mod of the one claim. The Mod was going to jump from .87 to over 1.50 in one year. I thought, hold on a minute, everyone has always been told that one bad claim will not wreck a company’s Mod.

One thing that helped the employer is that almost all states have limited losses. This is a limit that kicks in when Total Incurred (Paid + Future) reaches a certain level. In this case the limit was approximately $220,000. The limited loss was used when calculating the 1.50+ Mod.

I decided (on my own time) to re-calculate the Mod using four claims of 55,000 which would be the same value as the limited loss. The Mod was recalculated with the four claims and the Mod ended up at 1.79.

The statement that one bad claim cannot harm your Mod is not always true. One bad claim can harm your Mod. However, the other statement that is often mentioned held true. Frequency does affect the Mod more than severity. In the real-world example, the Mod was higher by .29.

The size of the difference between the severity and frequency has other factors that should be mentioned such as:

Insurance Office Ethics And The Pointy Haired Boss

Insurance Office ethics according to Dilbert can be lighthearted at times . Earlier this week, I wrote an article on Ethics. I happened to come across these hilarious Dilbert(r) comic strips on ethics. Is the one on the management fast track true? The link is here. Enjoy them on a Friday.

Ethics has become such an important topic to insurance most states that have adjuster or agent licenses requires a course in ethics. Many licenses have non-renewed because the ethics or flood CEU was not earned over the licensing period.

One of the best quotes I have seen on ethics is actually from my ChFC designation. The ethics of a Chartered Financial Consultant is to follow the golden rule. The golden rule replaced a few pages of “do this” and “do not do that” type of rules.

Most CEU providers will offer a few courses in ethics. I usually take online courses so that I can satisfy my North Carolina adjusters’ license requirement of three hours. You may want to check up on whether or not you have the required hours of ethics. It will save you much pain and cost in the future

Actually, there were just as many insurance company failures when examined by amount of premium dollars. Check out the list of Top 10 Insurance Company Insolvencies as of 2008. The top 10 are at the bottom of the article. Please note that these numbers are actually smaller than the true figures as some states had not reported at the time of the article.

PEO’s have been in existence for over 30 years. The addition of Workers Comp occurred approximately 15 years ago as some of the benefits offered by these organizations.

PEO’s have been approved for operation in almost every state. NCCI recently analyzed PEO’s with some very interesting results. According to NCCI, PEO’s are:

% of Market

1% – 2% of the voluntary market

2% – 6% of the residual market – higher number due to insurance placement difficulty

6% of the voluntary market in Florida

30% of the voluntary market in Arizona – surprising number

Reputation of Underreporting Claims Disproved

Actually had higher number of claims – if claims were not being reported, frequency would be lower

Loss Ratios tend to be lower – showing that underreporting and misclassifying are not problems with PEO’s

E-Mods are comparable indicating no Mod manipulation

Industries Served

No cherry-picking as industries mix same as regular market

Loss ratios across industry groups are similar except for transportation industry

A PEO is not a pure staffing agency. That is not how they work. The basic premise of a PEO is a certain company’s employees become employees of the PEO. The PEO agreement passes all rights of hiring/firing back to the employer. Many companies (especially truckers) have not necessarily felt at ease about this relationship. The PEO usually handles:

Payroll processing including withholding – all IRS approved

Benefits – are usually much more diverse than the employer originally had in place, such as different health insurance plans, 401K options, disability insurance, etc.

Many years ago, I was not necessarily a fan of PEO’s. Why? – because one fears what one does not understand fully. Over the years, I have learned the ins-and-outs of PEO’s including being able to analyze companies to see if it is a worthy undertaking to be placed with a PEO.

We do not sell PEO’s or Workers Comp insurance, so our opinions and this article are monetarily unbiased. Some of the companies that may want to explore PEO coverage are companies that:

Have a high E-Mod – most PEO’s allow you to take on their Mod, which is usually under a 1.0 – not always

Had a recent spate of accidents or one bad accident that may increase the Mod over 1.0 – need E-Mod projection to analyze this area further

Going into the State Assigned Risk Pool for higher risk companies – the rates that are paid under a Risk Pool can easily exceed 300% of the regular voluntary market

Wish to reduce their benefits processing labor costs – no one has to process payroll any longer other than reporting the gross payroll figures

Diversify their benefit offerings

There are many more reasons to compare PEO’s with your current WC coverages. The ones listed are WC based.

The insurance carrier that is ultimately going to handle any of your claims is one of the usual large carriers. There are some PEO’s that handle their claims internally. That is not as common today as it once was in the past.

Caveat – not all companies should become involved with PEO’s. Once again, almost all PEO’s are above board companies. Choosing the proper PEO company to partner with may be one of the biggest company decisions that will be made now or in the future.

I could come up with a list of companies that should not rely on PEO’s. However, it is only after a full analysis of your company’s situation that a PEO decision should be green-lighted. If your company feels they should explore PEO’s, call or email us and we will be glad to assist in the analysis and your search.

Basic Phone Etiquette Starts With Very First Words

My Basic Phone Etiquette rant comes from a few calls I have received this week. Today, I thought I would divert from Workers Comp and possibly rant on one area that is becoming very prevalent in running a business. I do not mind marketing calls.

However, the one key area that most of the phone marketers miss overall is to ask the receiver of the call if they are busy or in a meeting. Your product is important to you as the marketer. I understand you are trying to sell your wares in one of the toughest economies in history.

Please ask if I am on another call, in a meeting, or in the middle of something at the start of the call. I have taken time away from what I was doing to answer your call. There is a disturbing trend where the phone marketers just start into their spiel.

Often, I, or any other business person may be in the middle of something that needs addressing at that time. If you ask the question in the above paragraph, you and your company will be remembered as mannerly, business-like, etc.

There have been a few times where I actually might have been interested in your product, but I will never get past the first phone call without that question being asked when I pick up the phone. Of course, the calls to the business phone are screened, so that might be a moot point.

The calls to my cell phone are the ones where I assume anyone that wanted to do business in the future would ask the golden question – Are you in the middle of something? I could be driving, in a meeting, talking with someone on a land line, etc.

Ethics In Workers Compensation Claims – Does It Exist?

Ethics in the Workers Compensation claims arena has increased over the years. Last week, I had the privilege of attending the 3rd Quarterly Meeting of NC PRIMA in Winston-Salem, NC. If you are in the public risk sector in North Carolina, you are definitely missing out by not being a member. The other PRIMA chapters can be found here.

The law offices of Cranfill, Sumner and Hartzog (CSH) presented at the meeting. The topic was Ethics in Workers Compensation. Overall, the presentations were very informative. CSH is one of the premiere Workers Comp defense firms in North Carolina.

Over the weekend, I read some type of innocuous article on the 80-20 rule as it applies in science experiments. I then thought that the 80-20 rule does apply to Workers Compensation ethics.

In most of my career in insurance, I have always noticed that 80% of the Workers Compensation personnel are trustworthy, forthright, and very ethical. The other 20% are another matter. I would never say the other 20% are unethical all of the time. The phrase “hit and miss” would apply in these cases.

The 20% to which I am referring are not unethical ALL of the time. I will coin the term spot-ethics or almost always ethical except in certain instances. The spot-ethics are sometimes fostered by the TPA (Third Party Administrator) or insurance company office.

Some of the questions that ran through my mind after the CSH presentation were:
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Should an adjuster deny a claim just to settle the file for a cheaper amount later than paying all benefits upfront?

Should adjusters alter forms that were signed by the injured employee just to make sure they will be approved by the WC regulatory board or commission as long as they do not affect the amount of benefits payable?

Does the adjuster use the same guide each time when taking recorded statements?

If an adjuster skips a check by mistake, should they blame the mail, and then issue a check that was never issued in the first place?

Should the oldest medical bills be paid first and not on an ad-hoc basis?

Is the file documented with clear concise notes that are not handwritten?

Is over-reserving or under-reserving a file unethical?

Is an adjuster considered unethical if they accidentally make a mistake?

After pondering whether or not most claims personnel are ethical, I would have to say that the 20% was somewhat extreme. My assessment is that 5% of claims personnel are unethical at some point in their career. This does not mean they are unethical from day one. Are the questions I posed really a question of ethics? Some of them are – others are not.

CSH had a great list of ethical considerations for adjusters and risk managers that apply to any state:

Encourage prompt reporting of injuries

Act with a sense of urgency

Complete a prompt and thorough investigation

Have a legitimate and arguable basis for any denial

Competent and objective professionalism

Document notes completely and objectively

Authorize medical treatment timely

This was a partial list. If you want to read further on my opinion of the job of Workers Comp adjusting, check out my articles on Workers Comp ethics and adjusters.

Negotiated Bill Review – Rarely Mentioned Risk Management Technique

The Negotiated bill review is rarely mentioned even by providers of the service. I often phone consult with investment companies examining the Workers Comp market to see if it is a viable area of insurance. The usual inquiring questions are what most WC insurance personnel discuss a large portion of the time. Those would be: TPA’s, bill review, PBM’s, Rehab nurses, durable medical, etc.

The one that in my opinion is not used often enough is negotiated bill review primarily with medium-sized and larger surgical and hospital bills. If a TPA or carrier has a medical bill review company, there is usually a threshold where the bill is automatically reviewed for possible overcharges by the contracted bill review company. The bills are sometimes reviewed electronically which to me is not really a great type of bill review.

How I came to this article was someone at a very large governmental agency asked me if they could ask for a second opinion on the larger bills. There may be a conundrum due to agreements with the original bill review provider.

We have actually assisted in the referrals for a second opinion on the negotiated bill review. I am not so sure that a provider would want to hear from two bill negotiators on the same bill. We have never really run into any snags in the process other than possibly what is in the bill review contract.Very surprisingly, there are some companies that are not even running the medium-sized and some larger bills through a network. Relying on your TPA or carrier to confer that the larger bills are receiving a hands-on negotiated review may be costing $$. The word automatically is not the one to hear in these cases. Do you know at what level your bills are being reviewed hands-on and not electronically? If not, you should check on that and see if the level is appropriate.

National Workers Compensation and Disability Conference

Last year, I attended the National Workers Compensation Conference in Las Vegas. The conference was well worth the cost and time away from the office. It is billed as the largest WC conference. One of the big improvements is the location. The conference will be held at the Bellagio.

There are five different “tracks” offered that run simultaneously during the day:

Better Claims Management

Disability Management

Regional Issues

Medical Management

Legal/Regulatory Solutions

I actually found the Regional Issues track with California as the subject to be very informative. The brochure is here. According to the website, the following personnel should attend:

Attorneys

Case Managers

CEOs

Claims Managers

Health & Safety Professionals

Human Resources Professionals

Insurance Executives

Legislators

Occupational Health Nurses

Operations Personnel

Researchers

Risk Analysts

Risk Managers

RNs

Workers’ Compensation and Disability Claims Analysts

Workers’ Compensation and Disability Claims Managers

Workers’ Compensation Professionals

I originally attended the conference in 2011 with an Exhibit Hall Only Pass. I decided to return in 2012 as a full conference attendee. There is a $275 discount for early registration.

This conference is very large. The vendor area is huge compared to most conferences. See you there.

Physician Dispensaries Opt Out Of Opioids – A Good Sign

Physician dispensaries Opt Out due to a strict ban in Florida Florida has endured an epidemic of the improper use of opioids. They have been discussed to the nth degree in Workers Compensation.

One of the most prevalent voices against improper use of opioids has been Mark Walls in his Workers Comp Analysis Group on LinkedIn . The group has many articles and discussion on opioids. If you have not joined the group, you are missing out on the hot topics in WC.

The State of Florida decided to ban WC physician dispensing on opioids that was likely due to numerous television shows on pill mills in Florida. Florida sometimes seems to come up with very bad rulings on WC cases. However, this was a great way to cut opioid use. What do you think happened? According to WCRI in its very informative report , Impact of Banning Physician Dispensing of Opioids in Florida , when opioids are banned, the physician dispensers switched away from opiates. The physicians also substituted in non-opiates instead of writing a RX to be dispensed at a pharmacy. The lingering questions would be – why did the doctors prescribe opioids in the first place? According to the study, “The ban on physician dispensing of stronger opioids, House Bill 7095, went into effect July 1, 2011. The study examined the medical care received by injured workers with injuries occurring prior to the law change and after the law change. Patients’ prescription histories were analyzed for the first 3–6 months after the injury. “

Some of the highlights from the study were:

The study found a high rate of physician compliance with the ban. The percentage of workers receiving stronger opioids was 14.5 before the ban. This fell after the law change to 12.4 percent.

There was an increase in the percentage of patients receiving physician-dispensed nonsteroidal anti-inflammatory medications (e.g., ibuprofen, naproxen sodium)—from 23.8 percent of patients to 26.0 percent.

“If this evidence is correct, it could shift the policy debate from whether or not there are substantial benefits to some patients from physician dispensing, to whether or not there are substantial harms to some patients from physician dispensing,” said Richard Victor, WCRI’s executive director.

Victor cautioned that the results from this study are not definitive and could also be consistent with several other possible explanations. WCRI is planning an additional study that examines patients at a greater length of time from injury to provide more definitive information.

The next opioid study by WCRI should be very interesting as more data points can be obtained from the prescribing information.

California’s Great Insurance Database > CLSB

Californians have a great insurance database for construction contractors. The Contractors State License Board (CSLB) maintains a great database to see if a contractor has liability insurance. A homeowner can immediately see if the company working on their home has liability insurance.

I have recommended the website very often for main contractors to see if their subs have a valid certificate of insurance for liability and Workers Comp. The subcontracting company can be searched by:

License number

Business name

Personnel name

This can save a main contractor or even a subcontractor that may sub out some of their work at ton of headaches. If one of the subcontractors or their employees are injured while working for your company, you can end up paying out of pocket, especially if you do not have any Workers Comp coverage for the business owners.

The data is usually up to date with a small lag time. However, one your company has found out who is the carrier for Workers Comp and/or liability a quick phone call can be made to the carrier that is very similar to a certificate of insurance verification. The CSLB includes WC info for the subcontractors such as:

Carrier

Dates of Coverage

Policy Number

Workers Comp coverage history

Expiration Date

The expiration date is very important as a contractor can tell if the subcontractor will be insured during the time of the project. Phoning the carriers (liability and Workers Comp) is a heavy recommendation as the CSLB may not have all of the correct info if a policy has been cancelled recently.

Payroll Audit vs. Workers Comp Policy

Payroll audit vs. Workers Comp policy renewal timing has been a controversial subject for many years. We received this question last week from an employer with quite a conundrum that happens to almost all Workers Comp policyholders. The question was:

Why does the payroll audit occur after the policy renewal? We disagree with our Workers Comp audit and want to switch carriers. Our agent told us that we will receive a hefty penalty if we try to switch after policy renewal. Is this true? We are into our third month of the next year’s policy. This seems to be unfair and almost binds us to another policy without knowing the true cost of the first policy. Your question is one we see the most often from our blog readers. The timing of a WC policy does cause a problem for a large number of policyholders. The short rate penalty is the reason your agent recommended not switching policies mid-term. That was smart advice.

The conundrum is that an audit cannot occur the day of policy expiry. That would be very burdensome on your company to provide records for payroll that just occurred the previous day. The usual schedule for a premium or payroll auditor is to audit the business books 30 45 days after the policy has expired – in most cases. That gives the employer time to organize their records.

Most insurance carrier will send out the premium audit bill within 15 – 21 days after the premium audit. The schedule results in the receipt of the premium audit bill along with the audit results at 60 days into the policy. Your company would then have to pay the audit bill within 10 days or dispute it.

I have never agreed with the 10 days to pay a large audit bill upon receipt of the bill. Most states and polices allow up to 30 days. Regardless, if you follow the 10 days to pay rule or not, you are at least three months into a policy with a carrier that you wish to not have for Workers Comp.

Some of the questions I would ask you at this point are:

Is the audit incorrect or do you just disagree with it? Changes in business practices, new ownership, state law changes, etc. may have changed the “playing field”.

Did you dispute the policy and audit? If so, what were the results?

Are you willing to pay a large penalty to switch Insurance companies?

Have you had a premium expert look at your audit that you do not agree with overall?

Disputing an audit can create your own minefield, so to speak. You may actually cost your company more than the original audit.

The only solution I could ever come up with is to have a 90 day policy probationary period where no short rate penalty would apply if a company decided to switch carriers. However, the carriers would respond with very sharp rate increases as they would be on the hook for a claim that you for which no premiums were paid. In other words, I have not come up with a good idea, either.

The best way I have seen to resolve the matter is to do a well-informed audit dispute with information and numbers to back your dispute assertions. As distasteful as it may seem, you could switch carriers at renewal on your current policy in 2014.

If your company is in an assigned risk pool, switching carriers can be very close to impossible as there may be only one carrier covering your type of business in your state. This has happened more frequently in the last few years as many carriers do not wish to be assigned carriers.

Georgia Creates New Fee Schedule For Prescriptions

The State of Georgia creates new fee schedule for physician dispensed RX. Physician dispensed medications are controversial yet overwhelmingly expensive. The Workers Compensation Research Institute (WCRI) just released a study that verified what all Workers Compensation claim staffs have known since the prepackaged RX phenomenon began at least 10 years ago.

The most striking difference in the study was the fee schedule reduction for Soma. The comparison for Soma indicated a 75% reduction in the per-pill price of $2.54 to $..63.

The largest non-prescription reduction was for Ibuprofen. The per-pill price reduction was from 59 cents per pill to 29 cents which represented a 35% reduction.

The state of Georgia also performed a great balancing act of not eliminating physician dispensed medications while controlling costs. According to WCRI’s Executive Director, “The results of this study show that the new regulations achieved their objective, and did not discourage many physicians from continuing to dispense these drugs at lower prices.”

Fee schedules that are well-planned will always reduce costs and not result in any type of service reductions. Thirty five percent of all WC prescriptions were dispensed by physicians. After the reform and fee schedule initiation, physicians still dispensed 28% of all WC prescriptions. A 7% reduction is not that significant when compared to the extreme level of savings.

Many other states will likely follow suit regardless of the lobbyists from prepackaged drug efforts to sway legislation toward not regulating physician dispensing of prescription and non-prescription medications.

Fee schedules have been and will always be the simplest way to control medical costs. States such as Tennessee, Illinois have found this basic risk management technique to provide great dividends to employers.

Inverse Relationship

One of the areas where we so much confusion on E-Mods and X-Mods is their inverse relationship with Class Codes. If an employer is not careful with their audit disputes the may end up paying substantially more than if everything was just left alone.

The reasons are very straightforward. If your Mod is 1.0 and you have higher risk class codes, this means that when compared to similar higher risk companies, your company has the same amount of claims.

However, when you are re-classified into less risky class codes, your E-Mod may increase. The reason is your company will now be compared to less risky companies. The very basic Mod formula is

Mod = Actual Losses
Expected Losses

For example, with your old riskier class code, let us say your company had $48,000 in losses. Your expected losses were also $48,000 for your company’s risk level.

Mod = Actual Losses = $48,000 = 1.0
Expected Losses $48,000

Now, if your company is moved into a less risky classification code, the insurance carriers would expect that you would have a lower expected loss amount.

Mod = Actual Losses = $48,000 = 1.2
Expected Losses $40,000

The bottom line is that if you wish to DIY your Mod dispute, you may end up paying more than before the dispute. Usually, the higher your Mod was to begin with – 1.25 and up, it pays to be very careful before asking your carrier and Rating Bureau to change the codes.

This is not a plug. You may need an expert opinion before proceeding with a class code dispute. In the previous example, recalculating the Mod after the class code changes may be a critical part of the pre-dispute process.

The example is not meant to discourage Mod disputes as usually the offset of the difference in class codes makes up for the Mod readjustment.

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About Me

James J Moore
Raleigh, NC, United States

James founded a Workers' Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L's mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers' Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James's educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.